Analyzed the organisation’s planning tools for Bright light Ltd

As a newly qualified Manageemnt accountant of Bright Light Ltd., we have analyzed the organisation’s planning tools, we have done a lot of calculation work also and prepared a report and anlaysis that how the tools of management accounting are useful for decisions making as well as for controlling tools . The following are the details reports, working as well as the analysis is as follows for the top-level management.

Part One :

Task 1 :

Management accounting has developed worldwide only after the second world war when all the country which were involved in the war decided to open their economy. And then the concept of the open and free market has emerged worldwide and we could see the growth of the multinational organization worldwide. Due to this reason, cut-throat competition has been started and there was a need for a management accounting where top management must be reported about all the analytical information on which they can take fast decisions. And this is how management accounting has developed worldwide.

Uses of management accounting:

It works exclusively for the top-level management and prepares analytical reports on which top-level management take fast decisions as well as they can use the controlling techniques also.

1. b) essential characteristics of cost accounting systems

it calculates the cost of product and services.

It also helps in cost control through the techniques of standard costing as well as the budgetary control

It also provides reporting systems to the top and middle management as well as it has also featured for decisions makings.

Essential characteristics of Inventory Management systems: Under inventory management system we study the following tools for controlling the inventory cost as well as control. Few of the inventory control systems is as follows.

1. Economic order quantity
2. ABC analysis
3. Stores ledgers
4. Input-output ratios
5. Level of stocks
6. FSN analysis
7. VED analysis

As we know that the Inventory consists almost 50% of the cost of materials and the materials need to be controlled properly otherwise mismanagement in the stock will lead to huge losses for the company. Inventory control systems are also a part of the Cost control systems.

Task 2 :

1. Marginal Costings: As we know that as per the marginal costings we do the valuation based on variable cost only. The fixed cost is considered as period cost only. We calculate the contribution per units as well as we also calculate contribution per unit of key factors. It is a decision-making tool and it is very much help full for the management for taking short term decisions making. It very helps full tool for the management as we can calculate the break-even points as well as we can calculate the margin of safety. We can also calculate the units to be sold for target profits to be achieved.

Marginal costing is very much help full for following types of decision makings.

Based on marginal costing as well as its related decisions making tools we can take the following types of decisions

1. Fixation of the selling price
2. Exploring new markets
3. Make or buy decisions
4. Product mix
5. Operate plant or shut down
6. Fixation of selling price under normal circumstances
7. Pricing in competitions and depressions
8. An additional order for utilizing spare capacity
9. Export sales
10. Outsourcing and idle capacity
11. Product mix decisions
12. Decisions when there are no key factors
13. Decisions when there are key factors
14. The plant shut down decisions
15. Acceptance of special order
16. Adding or dropping of a product lines
17. The decision regarding further processings of joint or by-products

So we can see that the above types of decisions can be taken from the support of marginal costing and it is an added tool for the management.

Standard Costing: Standard costing is a specialized technique of cost accounting to control the cost. For each part of the cost, we fix the standard cost for every resource. Once the standard is fixed and actual operation is done we go and calculate the variances from the standard and the actuals and based on the results, it could be favourable or the adverse we make the decisions for controlling purpose.

Features of the standard costing are listed as follows:

1. The setting of standard costs for all the resources of production, it is material cost, Labour cost as well as the overheads.
2. Once the operation is done we calculate the actual cost.
3. We compare the standard cost with the actual costs a find out the variances.
4. The management at all level analysed the variances and take the requisite decisions.

Hence we can say that the fixation of standard and uses of standard costing helps the management for controlling the entire operations.

Task 3 :

As we know that Management accounting looks after the decision making as well as the controlling of any business organization. In the present world of competitiveness, we know that the management can control the selling price, especially it can not increase the selling price in normal circumstances. Hence what management can control is its cost. We also know that there are a thousand types of a component of the cost we are having. Mainly material cost, labour cost and the different types of overheads.

For this, we have to integrate the entire costing operation as well as inventory control operation management with the management accounting for the effective functioning of the management accounting. We are also aware that the controlling techniques can become successful unless we control at the macro level as well as micro-level. Hence if we integrate all the tools of cost control as well as inventory control it will be very good for the management accountants.

Part Two

Solution :

1. (P3) Preparation of Income Statements using Absorption and Marginal Costings
2. Absorption Costings

b). Marginal Costing

2. The profits as per marginal costing and absorption costing as same because there is no difference between the absorption rate of fixed production overhead as well as the actual fixed overhead is same, hence there is no over and under absorption of factory fixed overheads. Normally the net profits are different because there are different rates for absorption rate and we see that there is also a difference in the valuation of opening stock as well as closing stock.

a).

1. b) Calculation of breakeven and margin of safety

c). Limiting factor and maximization of profits

1. Production Budget

1. Raw Material Purchase Budgets

1. Trade Payable(Creditors) budget

Flexing Budgets and Standard costing

Solution for Tasks:

1. Standard Cost Card for one Woody

2. Total Variances, Total Material variances, Labour Variances and fixed overhead variances

3. Calculate Price variance, Usage variances, efficiency variance and all fixed overhead variances

Labour Variances

Overhead Variances

4. Reconciliation Statements

5. We can see that there is an Unfavourable balance of Material Price Variances, But material usages variances are favourable, Labour rate is increased but the efficiency of labour has increased, fixed overhead spending variance has reduced.

Part Three :

Regarding the work we have done in Part one as well in part two, the following notes are there which will help to support the resolution of financial problems.

1. Purpose of planning and budgeting process. We are very much aware that all the business and business model is working for the future. Unless we do the proper planning as well as do the budgeting we would be able to fix the target or we would be driving our businesses into goalless directions. Hence the first thing we need for running a successful business or running any operations we must make a plan as well as budgets.
2. Advantage of budgetary control

Budgeting process and budget make the management to look for the future .

It increases the production efficiency of the management as well as the entire operations.

It also helps in making Break-even analysis or we can say that the break-even analysis helps us for fixation of the targets.

Budget is also considered as fundamental tools for fixing the standard and then making standard costing operational.

Budgeting is also helping in taking the bak credits.

Budgetary control systems assist in the delegation of the responsibility as well as accountability.

Budgeting also helps in increasing efficiency.

1. We have just discussed above that even marginal costing tools like break-even analysis as well as margin of safety analysis help for fixation of budgets.
2. There are so many problems we are facing in the long term as well as short terms financial activity. We have seen there are a lot of issues like product mix decisions, sales mix decisions, controlling decisions as well as achievements of the decisions of the operational target. Management accounting tools consist of everything which helps us in solving these issues.

Make or buy decisions, Limiting factors decisions, Breaking into a new market. These are the issues are taken care of by the management accounting tools. As we have seen in the part one as well as part two that while budgeting and planning or while running the business operations we have solved these issues very easily by using the marginal costing tools.

Management accounting tools also help us to aid sustainable success within an organisation. We have seen with above discussions as well as the practical concepts that most of the short decisions making is taken by the marginal costing tools as well as the operations are being controlled by using the budgetary controlling tools as well as standard costing tools.

Yes, we have seen that while planning we plan for every bit of the business operations and then once the actual operation is done we compare the results and we take corrective measurements also to remove the obstacles. Hence we can say that tools of management accounting meet the needs in seeking a resolution to these problems.

Referencing :

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